2023 (7) TMI 905 - HC - Income Tax

Nature of expenses - expenditure incurred on capital stores and spares - Revenue or capital expenditure - HELD THAT - Tribunal has considered all the materials available on record and thereby dismissed the appeal of the revenue it has been observed by the Tribunal that the replacement of spares in the machineries would be allowable as Revenue expenditure only and addition made by the Assessing Officer was erroneous and hence, the same was deleted. The Tribunal has also observed that the expenditure incurred by the assessee cannot be treated as capital expenditure but it can be treated as revenue expenditure only. Addition u/s 14A - Whether no expenditure has been incurred to earn the exempt income disclosed during the year under consideration? - HELD THAT - The same are already covered by the decision of Gujarat Industries Power Company Ltd 2022 (8) TMI 1409 - GUJARAT HIGH COURT - The aforesaid two substantial questions of law are similar to that of those which were proposed to be framed in the case of Gujarat Industries (supra). Similar substantial questions of law have been proposed in the present appeal. Addition (net of depreciation) being expenses incurred on software treating the same as revenue expenditure - Whether the expenses are for new or different advantage of enduring nature and so to be treated as capital expenditure eligible for depreciation @ 25%? - HELD THAT - This issue is also no more res-integra based on the observation made in the decision of N.J. India Invest (P) Ltd. 2013 (7) TMI 738 - GUJARAT HIGH COURT . In the present case, Tribunal has specifically observed that the expenditure was incurred only for facilitating the trading operation leaving the fixes untouched. Assessing Officer disallowed the above expenditure and treated as capital expenditure being enduring the nature. Tribunal has reversed the finding of Assessing Officer and CIT (Appeals) in view of the observation made in N.J. India correctly. We are not incline to admit the present appeal, as the proposed substantial questions of law are not substantial questions of law.

Summary

Issues Involved:
The appeal under Section 260A of the Income Tax Act, 1961 arising from the order of the Income Tax Appellate Tribunal, Ahmedabad, for the Assessment Year 2005-06.

Summary:
1. Disallowance of Expenditure on Capital Stores and Spares:
The appellant challenged the addition of Rs. 5,65,05,497 made as revenue expenditure instead of capital expenditure. The Tribunal upheld the decision of the CIT (Appeals) in deleting the addition, considering the nature of the expenditure incurred on capital stores and spares.

2. Treatment of Spares Replacement Expenditure:
The appellant contested the deletion of the addition of Rs. 5,66,05,497, arguing that the replacement of spares in machinery should be classified as capital expenditure. However, the Tribunal upheld the decision that such expenditure can be treated as revenue expenditure only.

3. Treatment of Software Expenses:
The appellant disputed the deletion of Rs. 49,500 expenses incurred on software as revenue expenditure, claiming it should be treated as capital expenditure eligible for depreciation. The Tribunal observed that the expenses were for a new or different advantage of enduring nature and hence treated as revenue expenditure.

4. Exempt Income and Section 14A of the IT Act:
The appellant challenged the deletion of the addition of Rs. 5,70,854, representing 10% of the exempt income, under Section 14A of the IT Act. The Tribunal deleted the addition, noting that no expenditure was incurred to earn the exempt income disclosed during the relevant year.

The Tribunal dismissed the appeal of the revenue, considering all materials on record. The Tribunal's decision on the treatment of spares replacement and software expenses aligned with previous legal precedents. The Tribunal observed that the expenditure incurred by the appellant was rightly treated as revenue expenditure. The proposed substantial questions of law were not considered substantial and the appeal was dismissed at the admission stage.